How to Value Your Assets for a Bankruptcy Filing
Determining the Value Of Assets in Bankruptcy In bankruptcy, there usually is too little to go around. But how much actually is available? Debtors and creditors often differ about an asset’s worth. And the relevant market may dictate a completely different value. When the value of assets can vary so much, the services of a competent valuator are essential to bring a degree of objectivity to the situation.
Generally speaking, valuation of non-liquid assets could be what they would quickly bring in a "garage sale", "fire sale" or to a Pawn Broker".m It's good to have documentation support from places such as Craigslist and eBay. Keep copies of the valuation support. Value Depends on Many Factors Some assets can be valued with precision. Because they are liquid, cash, marketable securities and commodities have values that are readily ascertainable. Other assets, however, are valued more subjectively. Assets such as real estate, while readily salable, may have different value depending on who owns them, how they are being used, and the time and circumstances of sale. Machinery and equipment might have higher or lower value depending on whether they are sold in place. The value of a business may differ depending on whether it is to be liquidated or sold as a going concern. When Is Valuation Needed? Valuation may be necessary for many purposes in bankruptcy. For example, you may want to determine the value of a creditor’s secured claim, make adequate disclosure in support of a reorganization plan, evaluate offers for property sold out of the ordinary course of business, or determine whether a creditor’s position was improved within the preference period before a case commences. Each of these issues requires a valuation of the debtor’s property and the creditor’s interest in the debtor’s property. A valuation for one purpose may not be at all helpful for another purpose. Value Changes with Purpose According to the legislative history of the bankruptcy courts, valuation is to be determined in light of its purpose and the proposed disposition or use of the asset. Courts make this determination in conjunction with any hearing on the disposition or use of the asset or on any plan affecting the creditor’s interest. This means that a valuation early in a bankruptcy case would not necessarily bind the debtor at the time of plan confirmation. "Value" does not necessarily contemplate forced sale or liquidation of the collateral, nor does it always imply a full going-concern value. Courts have to determine value on a case-by-case basis. Is the Creditor Secured? One reason to consider valuation questions in reorganization cases is to determine whether a creditor is secured. If an asset has value and the creditor has a valid lien, the creditor has a secured claim. The balance of the claim, if any, is unsecured. Unless the asset is sold, it must be valued to determine the estate’s interest in the asset. Depending on the purpose of the valuation, courts can justifiably use liquidation, going-concern or other types of value for assets. Don’t Leave Valuation To the Court Bankruptcy is difficult enough for both debtor and creditor without arguments about the value of assets. Prudent business people will come to mutually agreeable valuations so that they can turn their attention to the formulation, negotiation and confirmation of a reorganization plan that truly serves everyone’s interests. All involved are better off if they value their claims and interests rather than leaving it to the court. Court decisions can be both unpredictable and expensive. Please call us if you have any questions about valuations in the context of bankruptcy. We would be glad to provide well-established, objective valuations to help you resolve potential disputes before they wind up in court.